Be patient. Settle in for the ride. Historians will write much about the role FATCA played in eroding America’s role as a world power.
There is no legislative record which explains the purpose of FATCA. FATCA appeared as an “offset provision” in the HIRE Act which was signed into law by President Obama in March of 2010. Some claim that FATCA was for the purpose of preventing Homeland Americans from “stashing their wealth” in unreported “foreign bank accounts” outside the United States.
Whatever its original purpose (if there every really was one), the truth is that FATCA has had an extremely detrimental effect on:
American citizens (with only American citizenship) – frequently referred to as “American Expatriates” – who chose to live outside the United States in an FBAR and FATCA world (See this 192 page book of comments from Americans abroad on how FATCA and citizenship-taxation)
Dual citizens who live in other nations, who (although aware of their U.S. citizenship) regard themselves as primarily citizens and residents of those other nations. (They are technically American citizens only because they were born in the United States or because their parent was an American citizen.) They are frequently referred to as “Accidental Americans.”
People who were “Born In The USA”, who left the USA at a young age and had NO IDEA that they were considered to be U.S. citizens (Ha, Ha, “Born In The USA” means U.S. tax returns for you AND NO bank account for you!) In 2011 the IRS “graciously” allowed those who who were NOT aware that they were U.S. citizens to pay ONLY 5% of their “net worth” as a penalty under the “Offshore Voluntary Disclosure Program”
Green Card Holders living in the USA who have bank accounts in their country of citizenship and previous residence (having trouble keeping those bank accounts)
Non-U.S. citizens who are the owners of non-U.S. “entities“ who are forced to reveal whether their entities have “U.S. Person” ownership by completing intrusive IRS forms
The ability of Americans abroad to retain their U.S. citizenship. Many feel forced to renounce U.S. citizenship in order to live a life that allows them necessary retirement planning opportunities. See for example: “When it’s all said and done, All Roads Lead To Renunciation”
Banks (large and small) located outside the United States
The economies of other nations. FATCA is the enforcement mechanism for U.S. “place of birth taxation” – AKA “citizenship-based taxation” – which has the effect of transferring capital from other nations to the U.S. Treasury. FATCA operates to expand the U.S. tax base into other nations.
The sovereignty of other nations including overriding the constitutions of those other nations
Privacy rights (if you believe that privacy rights are worth defending).
The presumption of innocence, if you believe that people should be presumed innocent. (FATCA has established a Global “Hunt and Frisk” movement.)
Given these facts, it is clear that FATCA has a definite effect and a current purpose that was not likely the original purpose of FATCA. Regardless of past purpose or current purpose, it is clear that FATCA is considered to be an important component of the U.S. arsenal of weapons (FATCA, FBAR, PFIC, CFC, Foreign trust rules) which are designed to attack “all things foreign” and “all things offshore”. As suggested by Professor Denis Kleinfeld:
The threat of FATCA enforcement has impacted every jurisdiction in the world and the global financial industry is quaking with fear. The US Justice Department has taken the position that the entire non-US financial industry is potentially part of a continuing criminal conspiracy with some US individuals and multi-national companies to evade US income tax. The Justice Department has unilaterally forged ahead to obtain indictments and convictions over prominent foreign banks, bankers, and some of their US customers. The United States justification for claiming the moral high ground is that it is merely seeking to have all US taxpayers pay tax as required under US law.
In March of 2017, Professor Shu Yei Oei released an insightful paper titled: “Offshore Tax Enforcement Dragnet.” This paper describes the interaction between FATCA, FBAR, OVDP and the alphabet soup of IRS penalty-laden reporting requirements.
This is part of a longer blog post by John Richardson about Repealing FATCA. In the next few days, we will be posting pieces of the rest of the article.
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